Legitimising green monetary policies: market liberalism, layered central banking, and the ECB’s ongoing discursive shift from environmental risks to price stability

Abstract

Through the analysis of ECB Executive Board member speeches, we have identified three main narratives about the consequences of the environmental crisis in the monetary authority's spheres of influence: The first emphasises environmental phenomena as financial risks; the second highlights the green investment or financing gap; and the third focuses on the impacts of climate change on price stability. These narratives lead to different forms of legitimisation in terms of why and how the central bank should intervene to tackle climate change. We show that the third narrative is displacing the first as the dominant discourse around ECB climate policy. The shift in focus from the central bank's duties to maintain financial stability to its responsibilities regarding price stability under the primary mandate could lead to far-reaching green monetary policies. However, based on the concept of layered structures, we argue that this change does not signal a departure from market liberal central banking but rather a shift within the prevailing system. What we are witnessing is a new form of market liberalism adapted to climate change, or market liberalism in climate crisis mode.